October is living up to its reputation on Wall Street as a month known for wild swings.

The broad U.S. stock market dropped for the 12th time in the past 14 days Tuesday, putting it on track for its worst October since the 2008 financial crisis. The market, as measured by the Standard & Poor’s 500 stock index, has turned volatile since hitting a record high Sept. 20, taking a defensive turn.

Investor psychology has become more cautious amid a growing list of risks that are putting a strain on the 9-year-old bull market. Those risks now include worries about corporate earnings after two industrial giants, Caterpillar and 3M, issued outlooks that worried investors, sending shares tumbling early Tuesday.

That news added to existing investor anxieties caused by China’s slowing economy, global trade disputes and rising interest rates in the U.S., which makes borrowing more expensive for companies and shoppers.

"Markets remain shrouded in a thick blanket of risk," said Stephen Innes, head of trading at Oanda, a currency trading firm.

Whipsawed

Investors got whipsawed Tuesday, with the Dow Jones industrial average tumbling nearly 550 points, or more than 2 percent, at one point before clawing back some of its losses to close 126 points, or 0.5 percent, lower at 25,191. The technology-stock packed Nasdaq composite again took the brunt of the losses, briefly dipping into “correction” territory, or more than 10 percent below its record high in August, before closing 0.4 percent lower at 7438, or 8.3 percent off its recent high.

October has a history of scary returns and elevated volatility. The 1929 and 1987 stock market crashes occurred in the 10th month of the year, as did the nearly 17 percent swoon in 2008 when the U.S. banking system was on the verge of collapse, according to S&P Dow Jones Indices data. And no month has had more daily price moves of 1 percent or more in either direction since 1950, LPL Research data show.

The S&P 500 is down 5.9 percent so far this October.

But not all the history is bad. In the past 20 years, October has been the best month for the Dow, posting average gains of 2.5 percent and finishing higher 75 percent of the time, according to Bespoke Investment Group.

Wall Street pros are still trying to decipher whether the recent dip in stock prices is signaling a change in the market’s trend from up to down or whether the price drops are simply a regular adjustment that will end with stocks heading higher again.

Hopeful signs

In one sign of hope, the S&P 500 closed at 2741, above the key 2700 level that marked its low earlier this month and served as a sort of floor for the market. Some Wall Street pros say the selling has been overdone and that buyers will reappear and push stocks back up.

“The (market) is oversold,” noted Mark Arbeter, president of Arbeter Investments, adding that stocks could be setting up for a potential bullish rebound.

Another positive sign is the market has become considerably cheaper than it was in late January when investors’ optimism was far more ebullient. The S&P 500 is now trading at 17.7 times its expected earnings over the next four quarters, down 4 full points from its 21.7 price-to-earnings multiple back at the market’s earlier 2018 high on Jan. 26, according to earnings tracker Refinitiv.

Still, the hit to the market this month could be a sign of things to come and “set the tone for much of the coming quarters,” warns Oliver Jones, markets economist at U.K.-based Capital Economics.

'Time to heal'

What concerns Jones is that many parts of the market that are tied to the health of the economy, such as tech firms and companies that sell discretionary goods to consumers, have fared worse than so-called “defensive” stocks, such as utilities and makers of everyday consumer staples. That “reflects investors’ worries about the outlook for growth in the U.S. and China,” Jones told clients in a report.

Citing what he refers to as “post traumatic volatility,” Jonathan Golub, chief U.S. equity strategist for Credit Suisse in New York, said markets “take time to heal” after undergoing sharp swings. “It is not unusual for markets to remain jittery for some time” after spikes in investor fear, he said in a report.

After Tuesday's wild swings and muted losses, the S&P 500 stock index closed 6.5 percent below its September all-time high, and the Dow was 6.1 percent off its Oct. 3 record.

Wall Street was hoping that strong quarterly earnings would provide support for the market, but that hasn't happened, even though analysts expect the companies in the S&P 500 to collectively post their third conseuctive quarter of profit growth above 20 percent, according to Refinitiv.

In a sign of investor angst, even though 79 percent of the 111 companies in the S&P 500 have topped third-quarter earnings forecasts, the stocks are not being driven significantly higher by investors, according to research from Bank of America Merrill Lynch. That suggests "that the good news is priced in," the firm said.